Type Of Ownership In Business

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In general, business is an organization in which basic resources (inputs), such as materials and labor, are assembled and processed to provide goods or services (outputs) to customers. In order to carry on a trade or business, a type of business entity must be selected. The three major of business entity are sole proprietorship, partnership, and corporation. The first type of business ownership is sole proprietorship. A sole proprietorship a business owned by one person. It is the simplest business structure to set up as it has very few legal formalities. It is quick and inexpensive to establish, and inexpensive to wind down. Under this structure, the owner of the business has no separate legal existence from the business. As a sole trader,…show more content…
Unlike sole proprietorship, partnership is a relationship or association between two or more entities, carrying on a business in common with a view to profit. Entities forming the partnership may be individuals or companies. There is little formality involved in creating a partnership. Partnerships are often formed because one individual does not have enough economic resources to initiate or expand the business, or because partners bring unique skill or resources to the partnership. Both partners should formalize their duties and contributions in a written partnership agreement. All partnerships should be formed on the basis of an agreement which may be made in writing, verbally or by implication. Partners must also decide how profit should be allocated among the partners. Accounting information is often used yo determine each partner’s share, as specified in the partnership agreement. The principal characteristics of the partnership form of business organization are association of individuals, mutual agency, limited life, unlimited liability, and co-ownership of…show more content…
A corporation may buy, own, and sell property, borrow money, and enter to legally binding contracts in its own name. It may also sue or be sued, and it pays it own taxes. Although stockholders legally own the corporation, they manage the corporation indirectly through a board of directors they elect. The board, in turn, formulates the operating policies for the company and select the officers of the companies. The life of a corporation is stated in its charter, it may be perpetual or may be limited to a specific number of years. If it is limited, the period of existence can be extended through renewal of the charter. Since a corporation is a separate legal entity, the life of corporation and its continuance as going concern are not affected by the withdrawal, death, or incapacity of a stockholder, employee, or officer. As a result, a successful enterprise can have a continuous and perpetual life. Since a corporation is a separate legal entity, creditors ordinarily have recourse only to corporate assets to satisfy their claims. The liability of stockholders is normally limited to their investment in the corporation, and creditors have no legal claim on the personal assets of the owners unless fraud has occurred. Thus, even in the bankruptcy of the corporation, stockholders losses are generally limited to their capital investment in the

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